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Nepal in the Year 2012: A Glance

The year 2012 marked the end of consensus politics and the beginning of a deepened polarization between the coalition government led by the Unified Communist Party of Nepal-Maoist (UCPN (Maoist)) and the United Democratic Madhesi Front (UDMF) on the one side and the opposition led by the Nepali Congress (NC) and the Communist Party of Nepal-UnifiedMarxist-Leninist (CPN-UML) on the other side. At the center of conflict arethe sharing of power as well as various deeply disputedtopics such as federalism, the form of governance, the autonomy of the judiciary, the election system and questions of citizenship. The incapacity of political leaders to find consensus on these issues led to the collapse of the 601-member Constituent Assembly (CA) on May 27, the deadline fixed by the Supreme Courtfor producing a new constitution.

Government and opposition also failed to consensually select a new prime minister as demanded by President Ram B. Yadav to lead a national unity government and to hold fresh CA elections. A new and widely accepted government would be essential to mark the continued transition of Nepal's post-conflict state to peace, security, justice and freedom and thus to increase the outreach of the state in society, tocreate a unified legal order, and togenerate business confidence. Despite the general political deadlock, there has been some progress in the peace process. The government managed to successfully integrate and rehabilitate the willing Maoist ex-combatants into the army. Still, many conflict residues such as disappeared persons, disqualified under-aged combatants, armed actors, gender-based violence and impunity remain unresolved. There is a need for resolution through transitional justice and a human rights-based code of conductin order to satisfy the legitimate expectations of the newly conscious citizenry of Nepal.

The Interim Constitution from 2007 does not provide any provisions for ending the current political deadlock. The dissolution of the CA means that there is no functioning legislative institution in Nepal. If the deadlock continues there is a risk that the effectiveness of political institutions at the national level further erodes. At the same time, Nepal's state is also very "fragile" at the sub-national level due to the absence of elected local bodies since a decade and the explosion of sub-national identity politics. The UCPN's proposal to name an apolitical government formed of civil society representatives in order to hold fresh election is rejected by the opposition, considering it a ploy to perpetuate themselvesin power. Trust-building is necessary to find a common ground on the national agenda and create incentives for a peace economy by abolishing growing crime, extortion, corruption, capital flight and impunity and engaging leadership in the virtue of cooperation, constitutional rule, reconciliation and peace-building activities.

Regarding theeconomy, the country failed to achieve a substantive recovery as the government could not bring a full-fledged annual budget, total foreign capital investment has declined in the productive sectors, the emigration of youth seeking foreign employment increased and the cost of production soared due to power cuts, industrial strikes and political instability.There is a high need forjob creation, infrastructural development, hydropower utilization, tourism, mitigation of climate change and harnessing the economy's potential to address food insecurity. Support of the international community is very important in realizing such an agenda.Furthermore,the civil society needs to support civic education, inner party democracy and restore the confidence of national institutions of governance to manage uneasy geopolitics.

Political Deadlock

In 2012, Nepal entered a new political transition without concluding the first one. As the CA, elected on April 10, 2008, failed repeatedly to frame a new constitution, the Supreme Court refused to accept the prolongation of the CA's term beyond May 27, 2012. With no choice left, Prime Minister Dr. BaburamBhattarai, Vice-President of the UCPN (Maoist), dissolved the CA the same day anddeclared that fresh CA electionswere to be held on November 22.In the following, he also stoked fears of the monarchy's return if he himself was to exit from power. However, the plan to hold CA election at the end of the year failed as the Prime Minister was not able to remove legal, political and practical difficulties for organizing the elections by amending the Interim Constitution 2007 through a broad political consensus. Benefitting from the political deadlock and the fractious political establishment, former King Gyanendra claimed monarchy's space and role in Nepal and continued attracting a cross-section of people, mainly from ungoverned spaces.

On May 29, President Ram BaranYadav reminded the Prime Minister of his caretaker status and urged the big political parties - UCPN (Maoist), the Nepali Congress (NC), CPN-UML and UDMF - to choose a consensus candidate for a new Prime Minister to lead a national unity government. Yet, among the political leaders no consensus was reached even though the President extended the deadline for naming a new Prime Minister seven times, until January 4. After this initiative had failed, he invited the leaders of 33 parties of the dissolved CA to prepare a roadmap for breaking the current political deadlock. SushilKoirala, the NC president, sought the support of political parties for his candidature but the ruling coalition of UCPN (Maoist) and UDMF refused to accept him arguing that the President is already a NC man. The UCPN demandeda package deal including the date for fresh CA elections, the size of the new CA, an amendment of the Interim Constitution and a warranty by allowing NC and CPN-UML in the cabinet only for a brief period until preparations for CA electionswere to becompleted. After this proposal was rejected, the UCPM (Maoist) suggested appointing an apolitical government of civil society representatives or, alternatively, the revival of the CA. The opposition rejected allthese proposals. In order to cornerthe opposition, UCPM (Maoist) and UDMF polarized national politics along pro-federal, ethnic, indigenous and Madhesi lines and formed the so-called Federal Democratic Republic Alliance (FDRA) of 22 small parties under thechairmanship ofPushpa K. Dahal, President of UCPM (Maoist). Political leaders seem incapable toidentify some common ground for dealing with the disputed issues andto find a solution on power sharing.

A Constrained Opposition

Opposition leaders argue that the Prime Minister's move to stay in power violatesthe five-point accord between the major political forcesconcluded on May 3 which stipulated that the Prime Minister would resign before May 27 in favor of a national unity government. The federal assertiveness of Madhesi(people living in the southern flatlands), Tharus (indigenous) and Janajatis (ethnic) caucus groups prompted the regime to deviate from this accord and to project the opposition as an anti-federal conservative force. The opposition claimsthat the Maoists' game plan to dissolve the CA aims to state capture, remove parliamentary oversight and accountability as well as impose a totalitarian rule. The ruling regime's political strength has, however, been reduced by internal divisions andthe resistance of the opposition. On June 17, a radical faction under the leadership of Mohan Baidya broke from the UCPN (Maoist), calling themselves the Communist Party of Nepal-Maoist, CPN (Maoist). In the following, the CPN(Maoist) formed a Young Volunteers Organization akin to the Young Communist League and demanded a "round table assembly" to complete the tasks of the constitution. In September, it submitted a 70-point demand to the Prime Minister and threatened to organize an armed revolt for a People's Republic if these demands were to remain unmet. Baidyaalso proposed his party's General Secretary, Ram B. Thapa, as prime ministerial candidate in an effort to reunite the two parties. The UCPN (Maoist), however, rejected this candidacy. The UCPN-led government was also weekend by fractions within its coalition partners, the UDMF, who split into the Madhesi Jana Adhikar Forum (Democratic) and the Madhesi Jana Adhikar Forum (Republic).

But the internal divisions of the governing coalitiondid not play into the hands of the opposition. In order to enforce their call for the resignation of the Prime Minister,opposition leaders sought the support of India and Nepal's President. Yet, India decided to stay neutral in this matter and the President hesitated to push for a resignation without getting clear support from India. The ruling regime does not fear the opposition which itself is deeply divided, but rather the new CPN (Maoist) movement. The opposition, too,refuses any collaboration with the new political force, for its nationalist rant. Continued political deadlock means that there is no clear perspective for when and how new CA elections are to take place, even though recent debates hint towards the possibility of elections taking place inApril-May 2013.

With the political deadlock continuing, the risk of a return to violence is increasing. The deployment of subnational forces and over 30 armed non-state actors in Tarai and the eastern hills who engaged in extortions and clashed with the police underlines the fragility of the Nepali state that is still unable to achieve even classic public goods - security, order and basic public services. Under these circumstances, it remains hard to increase the state's outreach in society, create authority or implement electoral, peace and development initiatives. The dominating interest of political parties in caste, class, ethnicity and regionalism, instead of national unity, has eroded Nepali state's capacity to consolidate the democratic gains and bridge the gap between the growing demands of citizens for good governance and the state's capacity to supply such governance. A yawning gap exists between the social and the political order. This gap is also underlined bytheabsence of elected local self-governance since 2002.In matters of health, education, drinking water, agricultural inputs and essential services,ordinary citizens and particularly conflict-victims are often left on their own resources, without any support by the state. The political elite has institutionalized grand corruption, impunity and personalized rule. State institutions such as the Supreme Court, the Public Service Commission, the Auditor-General, theCommission for Investigation of Abuse of Authority and the Election Commission are either understaffed or leaderless. The appointment of 'acting' officials in the district with no authority to address the vital issues of citizens has strengthened the collusive tendency of all-party committees which are blatantly rent-seeking as they distribute local state resources arbitrarily among themselves.

The erosion of national identity

The differentapproachesof the parties towards the questions of federalism, governance, pluralism, judiciary, citizenship and election caused the failure of the CA. NC and CPN-UML favor multi-ethnic federal provinces while UCPN (Maoist), UDMF and representatives of ethnic groups across the party lines have formed a strong caucus group to press for single ethnic, identity-based provinces. Maoists, Madhesi and the ethnic groups reject the idea of multi-ethnic provinces and demanded either a 14-state model, a formula also passed by a majority of the members within the State Restructuring Committee of the CA, or a 10-state model with a maximum of two federal provinces in Tarai, the southern flatlands bordering India, proposed by a partisan group of experts.The NC prefers six provinces on a vertical north-south basis while the CPN-UML proposes the formation of seven provinces. NC, CPN-UML and the Bahun-Chhetri Society argue that ethnicity-based provinces do not fit either with the reality, where various ethnic groups overlap with no one forming a dominant majority in any province, nor withthe secular nature of Nepal`s national polity. The idea of single ethnic provincesdoes nojustice to the rights of micro-minorities. Furthermore such provinces would be hardly economically and administratively viable.

Nevertheless, ethnic identity is clearly gaining momentum in Nepal's politics. Thus, after feeling frustrated with their leader's attitudes, representatives of ethnic groups across party lines have formed two ethnic parties and one alliance:The Federal Socialist Party-Nepal under ex-CPN-UML leader Ashok Raiwas created at the end of November, one month later the Social Democratic Party with a 7-member presidium, including ex-NC leader C. Subba,was formed. Already in October two Madhesh-based and five small ethnic partiesfounded the Federal Democratic Alliance (FDA). In Nepal, subsidiary identity politics is beginning to contest anational identity based on democratic citizenship.

Cold Peace

With the successful integration of Maoist ex-combatants into the army, Nepal finally managed to abolish the clumsy proposition of "one country, two armies". In the process 1,400 ex-combatants were integrated into the Nepal Army, 13,900 former rebels retired voluntarily based on cash packages.However, more than 4,000insurgents left the cantonment without informing the Special Secretariat, someof them joining CPN (Maoist) which continues to cultivatethe revolutionary rhetoric of the armed revolt. Many disabled and wounded ex-combatants are still waiting for transitional justice.And more than 4,000rebels who were disqualified during the UN verification, most of them for reasons of being under-aged, are now demanding cash packages equal to those of the ex-combatants.

Major peace-building challenges like the return of property seized by the Maoists during the conflict, the rehabilitation of conflict victims, the establishment of commissions on disappeared persons as well astruth and reconciliation and the delivery of peace dividends to the poor remain unresolved. The UN Human rights watchdogOHCHR revealed 30,000 cases of insurgency-related human rights violation implicating some 9,000 individuals. CPN (Maoist) refuses to returnthe lands seized unless the new settlers' livelihood is guaranteed. It has created its own military structure. The implementation of Local Peace Committees has also become a victim of patronage politics. Therefore, some NGOs and local civil societies have initiated alternative dispute resolution, mediation and restorative justice processes at some villages.

Nepal within the Region and Bilateral Relations

Nepal has been elected as a member of the UN's Economic and Social Council for 2013-15 and chair of the least developed nations. It took part in the Tehran summit of non-aligned countries on August 30. Nepal's government also organized the second ministerial meeting of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and proposed a regional plan of action and cooperation in the areas of agriculture, climate change, food security, tourism and transportation. Nepal will host the 18th South Asian Association for Regional Cooperation (SAARC) Summit in 2013. The summit's agenda is to focus on regional economic integration, social development and climate change.

India continues to be the most important bilateral partner of Nepal, even though India's clout on Nepali domestic affairs has weakened due to the collapse of the CA. India is worried about possible spilling-over effects if ethnic turmoil in Nepal explodes. Therefore, itreinforcedsecurity measures along the open borders and took initiative in bolstering bilateral defense and security ties, including joint border controls in order to fight terrorists, religious fundamentalism, anti-Indian propaganda and economic offenses.India favors and supports the stability of the ruling regime.China, Nepal´s neighbor to the north and second bilateral key partner,sees the geopolitical play of anti-Chinese forces in Nepal as a risk for the security of Tibet. China's aid strategy for Nepal is closely linked to this fear. During premier Wen Jiabao's visit to Nepal in January last year, heasked Nepal to come up with an aid proposal required to enforce an effective security strategy. In September, Nepal and China signed eight agreements and a letter of understanding on a concessional Chinese loan of $150million for the next three years as well as budgetary support of $20million, headed at, among others, infrastructure development, cultural programs, upgrading of transit points, support for theNepal Police, assistance for the voluntary retirement of ex-combatants, agricultural modernization, the upgrading of Pokhara airport andthe construction of the 750 MW West Seti Hydro project. Both neighbors, India and China, try to avert interventions of third countries into Nepali politics.

In February US Ambassador to Nepal, Scott H DeLisi, urged Nepalese leaders "to put national interest ahead of partisan politics in the remaining negotiations" and suggested them to see "beyond India and China while formulating its foreign policy." In September, the US removed the UCPN (Maoist) from its Terrorist Exclusion List considering that the party's activities are not against "US nationals" or "US foreign policy" but asked the government to respect the "gentlemen's agreement," which states that Nepal needs to treat Tibetan refugees humanely and provide them passage to India.

In the context of the collapse of the CA, EU ambassadors urged political parties to work for peace, stability and the constitution. They also expressed their concern about the fate of the Truth and Reconciliation Commission and the Disappeared Persons Commission. For fears of being trapped into pursuing war criminals the regime is still reluctant to set up effective commissions andhas instead merged the two commissions into one. It also sought to grant amnesty to human rights violators.

The Ailing Economy

Nepal's current population is 26.49million with a growth rate of 1.35%per year. It ranks 137th in the Human Development Report 2012. Life expectancy at birth is 66.5 years (female 67.3: male 65.3), theliteracy rate above 5 years of age is 65.9% (male: 75.1%: female 57.4%). With a per capita income of $645, the human poverty index value is 25.4% and power purchasing parity is $1.5 a day. About 90% of the Nepali workforce is engaged in the informal economy where the concept of social security is nonexistent. The official unemployment rate is 40%. Nepal has managed to reduce the child mortality rate to 60 per 1,000 live births and has increased enrollment for primary education to 95.1%. Still, 70% of the people do not have access to sanitation and only 80% have access to drinking water. Around 44,000 children die each year from waterborne diseases. Rural health facilities are poor due to the lack of doctors and medicine. 40% of children are engaged in child labor. Even though in 2010 the government engaged on a five-year action plan to end gender-based violence, domestic violence is still increasing, mainly due to poor law and order. Around 10,000 Nepali girls between 9 to 16 years are trafficked each year to India and the Gulf region.

Slow economic growth ofabout 3% in 2012 is putting the attainment of most of the goals of MDGs off the track. Agriculture contributes 36%, service 52%, industry 9.6%, tourism 3.4% and tax 14% to GDP. The tax rate is insufficient to create a self-sufficient state able to finance social security and to counter the consequences of a fast changing climate in the eroding ecosystem of the Himalayas. The contribution of workers' remittance to GDP is 22% ($5,115million), foreign direct investment 0.5% and foreign aid 4.7%. Remittancesare giving life to the rural economy but the high rate of emigration among the youth generated a labor deficit in the agriculture sector and caused a decline in the production of food grains, turning 3.5million people food insecure.

In July,the government announced a partial budget for the fiscal year 2012-13 amounting to $1809m. In November, it presented another two-thirds budget of $3378m for the same fiscal year. The share of public debt amounts to 35% of the GDP. The most important donors for Nepal are the United Nations (with a grant of $1 billion for development), the World Bank, the Asian Development Bank and the European Union, with regard to multilateral aid. With regard to bilateral development cooperation, Germany together with other EU countries, Australia, China, India and the US lead the list of donors. In 2012 the net trade deficits increased to 27% of GDP (US $4764million). From a total foreign trade value of $8452 million, exports amounted to $832million while imports stood at $ 5549million. The foreign exchange reserve is at $5.8billion, supported mainly by remittances, exports and tourism. Nepal is still far from creating a "business-friendly environment".Economic key problems are: a poor infrastructure, power cuts for up to 12 hours a day, the decline in productivity, a huge trade imbalance, inflation (around 12% in 2012), frequent political strikes,the absence of rule of law and corruption.High profile corruption has put Nepal in the 139th position on the Corruption Perception Index.


CA Constituent Assembly
CPN (Maoist) Communist Party of Nepal-Maoist led by Chairman Mohan Baidya
CPN - UML Communist Party of Nepal Unified Marxist-Leninist led by President J. N. Khanal
NC Nepali Congress Party led by President SushilKoirala
OHCHR Office of High Commissioner on Human Rights
SAARC South Asian Association for Regional Cooperation
UCPN (Maoist) Unified Communist Party of Nepal-Maoist led By Puspa K. Dahal
UDMF United Democratic Madhesi Front, a coalition of 3 regional parties
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